Succession Planning For Business Owners: More Important Than Ever
Grand Rapids, Mich., Dec. 30, 2021 (GLOBE NEWSWIRE) -- A common and often costly mistake when it comes to business succession planning is not starting the process early enough. The COVID-19 pandemic has caused many business owners to reconsider their business succession plan and retirement. For some, these are issues they have never addressed or even thought about.
According to PwC’s 2021 US Family Business Survey, only one-third or about 34% of US family businesses have a robust, documented and communicated succession plan in place.
By waiting too long, an owner runs the risk of not having the right people in place to run the business and limiting tax planning options for the business and their personal estate. Either misstep can cause a business to fail when it passes from one generation to the next.
An exit that is too fast or without direction can leave a leadership vacuum and damage relationships with existing clients and customers. With clear objectives, a sense of urgency, and experienced counsel in place, you can help ensure that your business, and your future, are secure. Crafting an effective succession plan usually includes a team of your attorney, accountant, financial planner and often a business consultant.
There are six areas of transition that should be addressed in a good succession plan. This takes time and should not happen all at once.
Founder Transition: How long do you plan to stay involved in the business? What are your retirement plans, if any?
Family Transition: If you plan to leave your business to your children, how will roles and power relationships change? How will family harmony be maintained through this transition?
Business Transition: How will the business operations and customer relations be maintained through other transitions?
Management Transition: Will management be made up of family, non-family, or both? How will new leadership be evaluated? What is the schedule for transferring control of day to day decisions?
Ownership Transition: How will ownership be transferred? A sale to management? A sale to a third party? A sale or gift to children?
Estate Transition: How will you coordinate your estate plan to ensure that the other transitions above occur as planned?
Many of the transitions above will be accomplished through formal documentation (e.g., operating agreements, buy-sell agreements, trusts, etc.). Still, some companies also use informal documents to memorialize company or family values, goals, vision, and mission statement. Many successful succession plans have periodic succession meetings (often annually) to discuss succession progress and continue to groom successors to think like an owner.
“Every business succession plan is unique to the business and the goals of its owners” says business & estate planning attorney, Mike Zahrt. “While succession planning can be a huge challenge for family-owned businesses, many of the issues associated with such as lack of communication, trust issues, and different expectations for the business can be reduced or eliminated by simply doing your early due diligence and using experienced legal and financial counsel as resources.”
If you are among the 66% of small businesses without a plan in place and have questions about developing your business’ succession plan, contact the Foster Swift business succession team.